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Convergence on Belt and Road Infrastructure Projects

Despite their differences, China and Vietnam have much to gain under the ambitious Belt and Road Initiative.

07 June 2017

Despite having achieved remarkable economic progress in recent years, Vietnam’s weak infrastructure is seen as a hindrance to future development. In particular, major network upgrades to its transport, power and technology systems are desperately needed if it is to deliver smooth and cost-effective trade flow, seen as vital for the region's increasingly connected markets.

Proponents of China’s ambitious Belt and Road Initiative believe the Initiative could benefit Vietnam enormously. Under the terms of the Initiative, China will help fund and construct a world-class network of high-speed railways, motorways, pipelines and ports across South Asia and Southeast Asia, with Vietnam seen as a key component for economic revitalisation.

Vietnam's strategic location and ease of access to its ASEAN neighbours give it a pivotal role in the Belt and Road strategy. Indeed, its cooperation is required if China is to make good on its promise to deliver a series of trade routes running from the mainland’s Fujian Province, passing through Southeast and South Asia, and onwards to Europe.

A particular focus is the planned upgrade of North Vietnam's Hai Phong port, a development seen as a priority under terms of the Initiative. The US$1.2-billion project has been divided into two distinct phases. The first is actual construction work on the port to be managed by the Vietnam Marine Administration. The second phase is a joint venture between several Vietnamese and Japanese enterprises involving construction of two wharves with a total length of 750 metres, giving the port the capacity to service 100,000-tonne container ships.

Once fully operational, the facility will form part of a direct trade link, connecting China and Vietnam's northern region with the United States and European markets, while bypassing Singapore. "This year, we will focus on investing in the Tan Vu terminal, Hai Phong's leading facility,” said Nguyen Hung Viet, the General Director of the Hai Phong Port Joint Stock Company. “We plan to enlarge its yard by a further 10 hectares, giving it a total yard area of 55 hectares. We will also build additional administration facilities. Further investments will include the provision of new piers, wharves and cranes."

Despite the two-way economic benefits of enhancing Vietnam's infrastructure and its connectivity to China, a number of sensitive issues remain. Apart from the ongoing territorial dispute on the South China Sea, Vietnam has also expressed concerns about the quality of the construction work, the sustainability of the project, and about possible environmental damage.

Highlighting this, a statement from OBOR Watch, a self-appointed monitor of the progress of the Initiative, said, "China's business practices have excited local protests in several countries where state-owned enterprises have constructed energy and infrastructure installations. Indeed, a number of Chinese firms have been accused of cutting corners, ignoring safety standards, and using second-hand or low-quality materials and equipment."

Despite such concerns, Chinese investment in Belt and Road-related projects is still being officially welcomed in Vietnam. During a September 2016 summit in Beijing, Vietnamese Prime Minister Nguyen Xuan Phuc and Chinese Premier Li Keqiang publicly reaffirmed their commitment to the Initiative and to the investments that have already been agreed. These include the China Export-Import Bank's 2013 financing of the Ninh Binh coal-based fertiliser plant and, in the same year, the China Development Bank's investment in Phase One of the Vung Ang Power Plant.

China is also playing a significant role in the development of Vietnam's railway infrastructure. To this end, China Railway Sixth Group Company has been awarded the contract to construct the Cat Linh-Ha Dong urban railway project in Hanoi. China has provided most of the US$550 million funding for the project through preferential credit loans of about Rmb1.2 billion ($169 million), as well as through another $250 million in concessional loans.

Another cornerstone project high on the agenda at the Beijing summit was a standard gauge upgrade to the rail link between Lao Cai on the border with China's Yunnan Province and Hanoi and Hai Phong. Once completed, this will allow greater trade volumes to be carried along the line, a necessity given the expanded capacity of Hai Phong's port capabilities once its own upgrade has been completed.